Asian markets slip through nerves over future Fed action

BANGKOK Asian markets slipped on Monday, with Japan’s Nikkei 225 index falling 3.4% after a sell-off on Wall Street on Friday gave the S&P 500 its worst weekly loss since February.

Investors are still recalibrating their moves after the Federal Reserve’s signal last week that it could raise current ultra-low rates earlier than expected. That gave the Dow Jones Industrial Average its worst weekly loss since October last year.

Part of the Fed’s mission is to keep prices in check. The fear is that burgeoning inflation could prompt central banks to reverse the lavish support that propelled markets to new highs after collapsing at the start of the coronavirus pandemic last year.

Until its last policy meeting last week, the Fed had said it viewed recent price increases as transitory and allowed the recovering economy to run at full throttle. Now it predicts that interest rates will be raised twice in 2023.

The shift to an earlier timetable for a rate hike, along with an upward revision of the core inflation forecast to 3%, suggests that the Fed still has some level of concern about inflationary pressures, contrary to its previous policy of to increase inflation. wild,” IG’s Yeap Jun Rong said in a comment.

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South Korea reported that its exports jumped nearly 30% in the first 20 days of June, providing the latest indication that the region’s recovery is continuing despite ongoing outbreaks of infection in many places.

The Nikkei lost 983 points to 27,980.87 and the Kospi in Seoul lost 1.3% to 3,227.92. Hong Kong’s Hang Seng Index also lost 1.3% to 28,427.13. The Australian S&P/ASX 200 fell 1.7% to 7,243.50 and the Shanghai Composite Index fell 0.3% to 3,514.61.

On Friday, the S&P 500 fell 1.3% to 4,166.45 in a broad decline, while the Dow Jones Industrial Average lost 1.6% to 33,290.08. The Nasdaq composite fell 0.9% to 14,030.38.

The Fed has also begun talks about slowing down its $120 billion monthly bond purchases, which help keep mortgages and other loans cheap in the longer term. But the Fed chairman has said such a reduction is likely still a long way off.

Markets were shocked after St. Louis Federal Reserve president James Bullard said on CNBC Friday that his personal prediction was that the first rate hike could come as early as next year.

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It’s an acknowledgment that a resurgent economy with near-record prices for homes and stocks may not need super-low rates much longer. A recent burst of inflation could also add to the pressure. But any drop in Fed support would be a big change for markets, which have been feasting on ultra-low rates for more than a year.

The Dow index lost 3.5% last week. The Nasdaq composite, which has more fast-growing technology stocks, fell a much more modest 0.3%.

Still, major US stock indices remain relatively close to their record highs as the economy continues to bounce out of the recession caused by the pandemic. The S&P 500 is only about 2% below its all-time high on Monday, and the Dow is within 5% of its all-time high from last month.

A degree of stock market jitters known as the VIX rose Friday, but has only returned to where it was about a month ago.

Ten-year government bond yields fell to 1.40% on Monday from 1.43% at the end of Friday.

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In other trading, the US benchmark crude rose 45 cents to $72.09 a barrel in electronic trading on the New York Mercantile Exchange. It gained 60 cents to $71.64 on Friday. Brent oil, the international standard, rose 35 cents to $73.86 a barrel.

The US dollar stood at 109.83 Japanese yen, down from 110.27 on Friday. The euro remained unchanged at $1.1861.